Joint Venture: Proportionate Consolidation Method & Equity Method

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Joint Venture:
Proportionate Consolidation Method
Equity Method

Andrea Marciana B. Diwa
Modadv1– K32

June 11, 2012 - Monday

Joint venture is identified as a topic of study because of the massive rise in international joint ventures during the business globalization and because of the different joint venture accounting practices across countries. The increasing trend to produce financial statements which are free from errors and misstatements lead to the competitiveness of various firms when it comes to abiding with the proper disclosures set forth by the International Accounting Standard. These disclosures requirements are designed to guide different firms into coming up with a financial
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However joint venture debt is relevant despite the fact that the venturer may be protected from the debts of the joint venture. It follows that the equity method could inappropriately present levered and unlevered ventures as equivalent investments. As a consequence, some believe the use of proportionate consolidation enhances comparability of firms holding investments in joint ventures with different levels of debt.

The study documented financial statement differences when joint ventures are accounted for by the proportionate consolidation and equity methods of accounting. It presents a collection of various data and disclosures of Canadian firms with proportionately consolidated joint ventures and it also documented the types of venturers that report ownership in joint ventures. Venturers are found in most industries but are most common in the extraction and utilities industries where companies share in exploration and development projects. Proportionate consolidation is used to account for joint ventures in Canada and continental Europe and is preferred by International Accounting Standards while the equity method is used in the United States, England, Japan and Australia which uses US GAAP as their main standard. The results of the study suggest there is some predictive value to the proportionate consolidation method over the equity method when joint ventures are defined. The analysis indicates stronger relations

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